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What to Do if You Run Out of Money in Retirement

If your retirement savings run out early, you'll need to make serious adjustments to your retirement plans.

The fear of running out of money in retirement is common among retirees and people who are near the end of their working days. And it's a valid concern, considering Americans' woefully inadequate retirement savings: As of 2013, about half of Americans aged 55 and older had no retirement savings at all, according to the Government Accountability Office. And those who had saved only had nest eggs of about $100,000 to $150,000 -- not even enough to provide more than a four-figure income over a 25-year retirement.

Unless you expect to retire with more money than you could ever spend, you'll need to be careful about how much of your savings you withdraw in any given year. Draw down your nest egg too fast, and you'll be on pace to outlive your money. If you're in this situation -- or afraid of winding up in it -- here are some ways to increase your income and cut expenses so you can balance your retirement budget.

Preventive measures

If your retirement savings accounts are close to running out but you still have a little more cash in them, take action immediately to protect what funds are left. If you can save at least a little seed money to work with, you have a chance to turn your funding crisis around in a few years (and you'll learn how to do that at the end of this article). That's why it's a good idea to do a projection at least once a year to see how long your retirement savings will last based on your current rate of withdrawal.

You can use a retirement calculator to do the math and figure out if you're likely to run out of money. If you are, then it's time to aggressively cut costs, look for new income streams, and invest your savings wisely -- more on that below.

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Decrease expenses

For most retirees, it's simpler to reduce expenses than to increase income, so that's a good place to start. If you've run out of retirement savings or are about to, it's time to take drastic measures. Write down all your monthly expenses and then start cutting everything that is even remotely cuttable. Forget about Netflix, restaurant budgets, and so on -- you won't be able to afford such niceties in your current predicament. If you have both a landline phone and a cellphone, cancel one of them and then change your surviving phone over to the cheapest possible plan. Look for ways to slash your grocery budget. If you live in an area with public transportation, sell your car (which will allow you to cancel your car insurance as well -- a double whammy).

The goal is to cut your expenses down to the point where your now-reduced level of income will get you through each month. Once you find more sources of income, you'll be able to reintroduce some of the expenses that you are now cutting, so don't think you'll be stuck living like this forever.

The average retiree spent about $3,700 per month in 2015, according to the Bureau of Labor Statistics. If such a retiree could cut their costs by just 19% to an even $3,000, they would save $8,400 a year -- and that amount could go a long way if invested responsibly.

Increase income

If you've run out of money, then you're probably living on your Social Security benefits. Social Security is a great program, but it's a rare retiree who can live comfortably on nothing else, so the next step is to find more sources of income. A part-time job is a great option, but it can be difficult for a senior to find anything better than a low-paying service job, so you may have to do more than traditional job-hunting.

Consider your skills and resources. Do you have any hobbies that you could turn into a home business? For example, if you to garden, you might be able to sell flowers and produce at your local farmers market. If you have a favorite craft, you can sell your products on Etsy. Or you might be able to turn the skills you learned during your working years into a side gig. And work isn't the only potential income source: Other options include getting a reverse mortgage, renting out a room in your house, applying for state and federal assistance programs, selling your possessions at flea markets or on eBay, and so on.

The average Social Security benefit in 2017 is $1,404 per month. If you're receiving the average benefit and your expenses are $3,000 a month, then you'll need another $1,596 in monthly income to get by. A part-time gig bringing in $1,000 per month, plus a few hundred dollars from a reverse mortgage or a rented-out room would probably do the trick.

Making money from your money

If you have a little bit of cash left over in your retirement savings, you may be able to turn this money into a source of income. When interest rates are high, bonds and CDs make great income investments for retirees. At the moment, however, they're near their all-time low, so if you're on track to go broke, then the stock market is your best bet. Stocks carry higher risk, but they also provide much higher rates of return, which you'll need to make your savings grow faster than inflation -- and then some.

Consult with an investment advisor for more specific investment strategies based on your financial situation. However you choose to invest that bit of money, you won't be able to touch it for a while, because you'll need to let it sit there and generate returns. With some decent luck, you can turn that bit of cash into significantly more cash in five or 10 years.

Say our example retiree takes their $8,400 per year in savings and invests it in an index fund that earns an average of 8% per year. In 10 years, they'd have another $131,000 to their name. From that day on, if they withdrew just 5% of that total each year, it would provide an additional $6,550 in annual income -- and it would likely last for the rest of their retirement, assuming they kept the remaining funds invested.

If your retirement savings are rapidly depleting, then it's not too late improve your financial outlook. Whatever course you take, start now, because when it comes to saving and investing, time is your greatest asset.